TORONTO (Reuters) - Canadian retailers, scrambling to keep pace with the likes of Wal-Mart Stores Inc (WMT.N) and Amazon.com Inc (AMZN.O) in an increasingly crowded market, are investing heavily in high-tech tools to lure shoppers.
Companies have ramped up their efforts to address consumers' evolving shopping habits and to compete with rivals such as Wal-Mart, which is pouring more than C$30 million ($27.4 million) into Canadian e-commerce projects this year.
The tools, which include data analytics, mobile apps and online stores, have long been used by U.S. retailers in their home market. Now, Canadian companies are recognizing them as essential.
"There is now a real, 'Oh, my God, we have to play catch-up really fast,' because there's this threat of all these U.S. retailers increasing their dominance in the Canadian market," said Forrester Research analyst Peter Sheldon.
He said Canadian retailers were in a "dire state," with little e-commerce presence until about a year ago, but the landscape has improved dramatically.
Canadian shoppers spend an average of C$954 annually online, according to market researcher Ipsos. Eight in 10 Internet users will make an online purchase this year, Ipsos said.
Online retail sales in Canada are expected to reach C$34 billion by 2018, according to Forrester, representing about 10 percent of retail transactions, up from 7 percent in 2013.
"Retailers have understood that they will have revenue taken from them if they don't have a mobile strategy," said Douglas Lusted, co-founder of Waterloo, Ontario, startup Linkett.
Linkett's devices and software use "near-field-communication chips" to interact with consumers as they shop. Its software analyzes shopping behavior and helps retailers increase targeted sales.
Lusted said Linkett was working with three big-box Canadian retailers but declined to name them.
Canadian Tire, which sells automotive, household and leisure products, has set up a team in Waterloo to work on tools and apps like one that maps aisles to help shoppers find items when they enter a physical store.
"One thing we do is ... give (customers) the ability to take the five things that they have on their list and do that as quickly and easily as possible – that is vital to the in-store experience," said Craig Haney, who runs the team.
Department store operator Hudson's Bay is spending about C$40 million this year to boost digital growth. It said it is working to make its online and in-store experiences seamless, both for shoppers and behind the scenes.
Grocer Metro has added features to its iPhone app that let customers scan the product code on, say, a packet of pasta in their pantry and add it to their shopping list for the next trip to the store.
Metro declined to provide details about how the changes have affected sales. A spokeswoman said the company is considering an Android version of the app.
Analysts say that even with these investments it will be tough for Canadian retailers to keep up.
"Having honed their skills in the uber-competitive U.S. market, U.S. retailers ... have launched better Canadian sites and offer better digital marketing programs," said Jenn Markey, vice-president of data analytics firm 360pi.
Walmart Canada shoppers, for example, can browse through more than 150,000 products on their phones, tablets or home computers on a website optimized for each device. And customers can create shopping lists and let others edit the lists on the go.
The company, which offers no-minimum free shipping, recently launched a pilot project in Toronto that allows packages to be delivered to lockers at several locations for those who want more delivery alternatives.
Wal-Mart and Amazon's use of data analytics allows them to price "surgically," cutting prices to beat rivals while charging more for other items, said IDC's Greg Girard.
Best Buy Co Inc (BBY.N) in Canada uses an in-store app, developed by 360pi, that gives store associates real-time views of competitors' prices and availability. Its mobile app lets customers shop on the go and reserve items en route to a store.
That feature represents a quarter of Best Buy Canada's Web revenue. Sales through the program have more than doubled, year-over-year.
Canadian retailers have little choice but to try to compete with their deep-pocketed U.S. counterparts.
"The onus has to sit on the retailer for figuring out how we can be efficient," said Simon Rodrigue, senior vice president for e-commerce at Walmart Canada. "Canadians are very digitally savvy. I think retailers are just waking up to the demand."
Additional reporting Euan Rocha; Editing by Amran Abocar and Douglas Royalty